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Thursday, 19 February 2015

WHO IS DESTABILIZING THE EU, Greece or Germany?

Does Greece with just 2% of EU GDP have the ability to
destabilize the EU simply by refusing the IMF-EU imposed austerity program, or
does Germany have such power because it has been trying to impose its economic hegemony
over the rest of Europe?

On 19 February 2015, German Finance Minister Wolfgang
Schaeuble rejected a Greek compromise proposal for a Greek “bridge loan” that
would essentially buy six-month time for the new SYRIZA government in Athens to
restructure the fiscal system and stabilize the government’s finances while
meeting domestic needs.

Rejecting the proposal from Athens, a proposal that
most of the EU members are willing to support, Germany demanded that the new SYRIZA (center-left) government of Greece
continue with IMF-EU austerity as previous (neo-liberal oriented) governments had agreed in the past five years.
Of course, austerity has resulted in a drop in GDP of 25%, drop in one-third of
incomes (wages, benefits and social security) for about two-thirds of the population,
unemployment of 26% and a mass exodus for college educated people, while
leaving the public health care system in shambles because money was transferred
from health care to paying interest on debt. At the same time, debt-to-GDP
ratio rose from 110% before austerity to 175% in 2015. The strongest argument against austerity is that every single promise the IMFand Germany made about its results - economic development, lower unemployment, lower debt-to-GDP ratio, healthier government revenues - turned out to be entirely false.

For its part, Germany insists that Greece is trying to negotiate
an extension of euro zone funding with no strings attached and it must abide by all neo-liberal policies previous governments agreed to implement, regardless of the cost to the middle class and workers, to health care and education, as long as the defense sector stays untouched because Germany exports weapons, submarines, etc to Greece. Meanwhile, Athens
promises to meet its debt obligations as long as it has better terms and no
interference in domestic policies. This means no interference in the country's institutions impacting everything from
health care and education to the fiscal system and privatization of public
assets that Germany wants sold for pennies on the euro to billionaires waiting
for the fire sale. Ruling out any compromise, Schaeuble argued that: "Our
room for maneuver is limited. We must keep in mind that we have a huge
responsibility to keep Europe stable."

The
German finance minister clearly presents his government as the guarantor of EU
stability and Greece as the catalyst for instability. The EU’s largest creditor
nation, Germany is the victim of the EU’s largest debtor nation, Greece, so
Berlin must protect the integrity of the EU as far as Schaeuble is concerned. The
question is whether this is the case, or is the German finance minister
demonizing the weak debtor nation, buying time and forcing it to make even more
compromises so that the failed IMF-German-imposed program prevails in Greece.
This would then send a message to all of the EU that Germany is hegemonic and
its austerity and neo-liberal policies will prevail over the periphery members
in the EU that Germany has reduced into quasi-colonies, as the Greek prime
minister implied in a recent speech before Parliament.

Germany
has a long history of trying to impose its hegemony over Europe, going to war
when Prussia led the unification of the Germanic states in 1870. Germany went
to war again in1914 in a blatant attempt to secure more colonies, semi-colonies
and spheres of influence, and global markets. In 1939, Hitler, following the
long-standing German tradition of hegemony went to war against the rest of
Europe, putting an end to the strategy of war as a way of securing the goal of
hegemony. In the second half of the 20th century, Germany turned to
the concept of European economic integration to accomplish the goal of hegemony
where war had failed in 1914 and 1939.

One of Germany's best historians of the 20th
century, Fritz Fischer, argued in his works dealing with the German Empire that
the goal of Prussian (Junker aristocracy)-led regime from 1870 to 1914 was to
be a world power, otherwise the alternative was decline. (See Fischer's Weltmacht oder Niedergang: Deutschland im
ersten Weltkrieg, 1965)

The
concept of global power status is deeply ingrained in German culture and today
it manifests itself in the patron-client integration model that Angela Merkel
has been pursuing in order to achieve the goal, while at the same time enjoying
the support of German banks and corporations, many of which the government is
itself a stockholder. In other words, German contemporary foreign financial and
economic policy as practiced through the mechanisms of the European Union have
a historical basis, and reflect the "Fischer Thesis" of World Power
or Decline!

One could argue that just because Germany was founded as a nation by going to war against neighboring France in 1870, that does not mean Germany in early 21st century is militaristic like old Prussia. The same argument could then made about Germany's quest for hegemony in 1914, and again in 1939. In this case, let us wipe out the memory of the holocaust, Jews, gypsies, Communists, among other war crimes, including those that the Third Reich committed throughout the Balkans, including Greece. Let us simply accept that Germany in the early 21st century is not militarist and it is not pursuing political hegemony at the expense of its neighbors, having learned bitter lessons from history. Can we possibly make the same argument about German economic hegemony ambitions?

The
obstacle for Germany is not Greece and the periphery nations in the EU that are powerless to determine what happens to the monetary bloc. After all, Greece like all of the periphery EU members have always been dependencies of the core countries. From its creation as an independent nation in 1832 until the present Greece was always a debtor nation and always a dependency of Great Britain from 1832 until the Truman Doctrine, and then on the US from 1947 until the 1970s when it took a turn toward much greater European integration and depndence.

Germany's problem today is actually the
core EU members, especially the UK that wishes to redefine its relationship
with the EU, and the US that wants a balance of power in Europe with a modicum
of containment imposed on Germany through the EU and NATO. At the same time,
there is the reliance of Germany on Russian energy that makes it vulnerable and
the global competition from China that is investing hundreds of billions in
Europe, thus investing in market share at Germany's expense. Greece is small,
symbolic, and a political issue that reflects Germany's larger problems in its
quest for global status.

The
issue for Germany is to inject sufficient fear into the rest of Europeans about
any nation deviating from German policy dictates so that they follow faithfully
as they have in the past. Greece is only the example Germany is using to
accomplish its goal, because Greece has only “negative political and economic
leverage” while Germany has positive leverage. In short, Greece, like all
debtor nations in our modern times can threaten suspension of payments thus
causing instability among private and public bondholders who would rather
secure a deal securing some return on investment than no return.

The
massive transfer of wealth from Greece to Germany in the last five years of
austerity has resulted in several billion euro profits for German banks. True,
German taxpayers have provided loans to Greece used to repay German and other
EU creditors, but the money never goes to Athens, but directly to the banks
including European Central Bank that has also made huge profits from Greek
bonds. In other words, in the short term European taxpayers are making loans to
Greece to pay the EU banks, while Greece will be saddled with debt for the next
80 years. This kind of negative leverage actually destabilizes markets because large
institutional investors fear not making as much money as they hoped. Of course, there is one other type of negative leverage Greece enjoys that really angers Germans, even if they do not support their government's tough policy. The left-center SYRIZA government has repeatdly asked Berlin to open negotiations for war crimes and several billion - anywhere from 30 to 150 billion euro - that Germany owes Greece. Berlin insists it will not discuss war crimes and damages owed to Greece.

On the
other hand, there is the positive leverage that Germany exercises as the
hegemonic creditor nation. In order to secure austerity that keeps the currency
strong at the expense of debtor nations whose economies are weak and become
even more dependent on the creditors, Germany and by extension the EU is
refusing liquidity to the debtor nation. The threat of Germany immediately
throws off the bond and stock markets, because it means that the absence of
agreement with the debtor will mean financial and economic turmoil.

Germany’s
positive leverage stems from its massive economic power within the EU and
clearly as the dominant country it has the ability to stabilize or destabilize
as it wishes. At the same time, Germany feels the pressure from the US and
China, pressure it resents as we have seen over the disagreements on the
Russia-Ukraine crisis. In its quest for global power status, Germany wants a
freer hand in the EU that it considers its back yard, just like the US
considers the Caribbean and Central America its back yard. With France politically
and economically weak, the major obstacle to Germany is the persistence of
anti-EU sentiment coming out of the UK. It is possible that the UK will have an
even larger economy than Germany at some point before 2024, and this is
something that Germans take into account when they position themselves for
hegemony today. In short, the German-UK power struggle is important today,
though hardly fierce enough for these two economic rivals to go to war as they
did in 1914.

Beyond the very tragic issue
of millions suffering lower living standards, and beyond the very real prospect
of their continued suffering for a number of years under such conditions, there
is the fear that other countries could also meet with a similar fate as Greece.
The question for EU leaders must be to what degree is Greece and for matter all
of the periphery (southern and eastern European countries) sovereign and to
what degree do citizens have a voice in the illusion of a democratic process
that really belongs to the banks and multinational corporations that the state
represents?

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